As a former Executive Director of the World Bank I know that the columnists of the Financial Times have more voice than what I ever had, and therefore they might need some checks-and-balances.
Currently, having probably trampled some delicate ego, I am a persona non grata at FT.
Would the child shouting out “the Emperor is naked” have his observation published in FT? Would the child now need a PhD for that?

In it Wolf quotes Mario Draghi, president of the ECB, with: low interest rates “are not the problem. They are the symptom of an underlying problem, which is insufficient investment demand, across the world, to absorb all the savings available in the economy.”

But Draghi, the former chair of the Financial Stability Board, is the current chair of the Group of Governors and Heads of Supervision of the Basel Committee for Banking Supervision, and so he is more than a central banker, he is a bank regulator too… and as such he is definitely not my doctor of choice.

With Basel regulations banks have de-facto been told: “If you stay away from lending to the risky (like SMEs and entrepreneurs) then we will reward you with lower capital requirements for what is perceived, decreed or concocted as safe; which means that then you will be able to leverage your equity the most with assets of the “safe” type; which means that then you will earn the highest risk adjusted returns on your equity when doing business with sovereigns and the AAArisktocracy, and financing residential housing.” Does that not sound like a banker’s wet dream come true”

And to put that regulatory favoring of the safe into context, let me quote one who Wolf would not classify as a rightwing populist, John Kenneth Galbraith. In his book “Money: “whence it came, where it went” (1975), Galbraith writes:

“For the new parts of the country [USA’s West]… there was the right to create banks at will and therewith the notes and deposits that resulted from their loans…[if] the bank failed…someone was left holding the worthless notes… but some borrowers from this bank were now in business...[jobs created]

It was an arrangement which reputable bankers and merchants in the East viewed with extreme distaste… Men of economic wisdom, then as later expressing the views of the reputable business community, spoke of the anarchy of unstable banking… The men of wisdom missed the point. The anarchy served the frontier far better than a more orderly system that kept a tight hand on credit would have done…. what is called sound economics is very often what mirrors the needs of the respectfully affluent.

The function of credit in a simple society is, in fact, remarkably egalitarian. It allows the man with energy and no money to participate in the economy more or less on a par with the man who has capital of his own. And the more casual the conditions under which credit is granted and hence the more impecunious those accommodated, the more egalitarian credit is… Bad banks, unlike good, loaned to the poor risk, which is another name for the poor man.”

And so, to me, that clearly implies that the regulators of the Basel Committee are regulating in favor of, or under instructions from, the banks of “East” and the sovereigns, the respectfully affluent they meet in Davos; while completely ignoring the risk-taking needs of the new economy of the “West”, and for which any additional bias against perceived credit risk, condemns it to even more misery and doom.

In the West live the unemployed, the younger generations, the developing economies and all those clamoring for an opportunity to have a go at their dreams.

The prime purpose of banks is to channelize efficiently excessive savings to the economy and, if you cut off the options, just because you do not like banks to take risks, those excessive savings must find other outlets or do nothing… all with expected unexpected consequences.

To top it up, regulators did not do their basic homework. Had they done so they would have understood that for the bank systems in general, what is perceived ex ante as risky, poses no danger at all. All big bank crises always result from excessive exposures to something wrongly perceived ex ante as safe.

PS. The following risk weights, for the purpose of determining the capital requirements for banks, evidence clearly he dangerous ideology and ignorance of the member of the Basel Committee.

Sovereigns 0% Citizens 100% can only be risk weights thought up by convinced raving mad statists.

AAA rated 20% Below BB- rated 150% can only be risk weights thought up by those who have no idea of life on Main Street.

Me and my constituency!

Me and my constituency!

FT, just so that you know:

Some very few regulators thinking they were capable of managing the bank risks of the world, caused and are still causing immense sufferings, and you Sir are refusing to help holding them accountable for that.

My wicked question to FT

When do banks most need capital, when the risky turn out risky, or when the "not-risky" turn out risky? --- Yep, I think so too!

Videos: The Financial Crisis

My credentials

I have more credentials than most to speak out on the financial crisis and the subprime financial regulations having spoken out loudly about that since 1997...which could be embarrassing to “experts” with weak egos.

Most of those who think of themselves so broadminded when asking for “out of the box thinking” are so very narrow-minded they can only accept what comes, if that outside box lies “within their own small networks”.

Thank you, Martin Wolf

And on July 12 2012 Wolf also wrote that when "setting bank equity requirements, it is essential to recognise that so-called “risk-weighted” assets can and will be gamed by both banks and regulators. As Per Kurowski, a former executive director of the World Bank, reminds me regularly, crises occur when what was thought to be low risk turns out to be very high risk."

And that is something that I of course also appreciate, but that yet makes me curious on why Wolf does not follow up on it.

Subscribe To

Closed for comments though not entirely

I don’t take comments here because I might not have the time to answer (or censor) them and I hate unanswered comments, but, if you want me to comment on something somewhere else invite me and I might show up: perkurowski@gmail.com

Search This Blog

Off-the-blog

One great perk I get from maintaining a blog like this is that it allows me to sustain many conversations with some great journalists who also need and wish to be kept “off-the-record” or as I call it “off-the-blog”.

Yet one wonders

Between January 2003 and September 2006, out of 138 letters to the editor that I sent to the Financial Times before I placed them on this blog they published these 15. Not bad! Thank you FT!

Unfortunately, since then and until the very last day of the decade, out of some 1.000 letters that you can find here, FT published none, zero, zilch. Of course FT is under no obligation whatsoever to publish any of my letters and of course one should not exclude the possibilities that my letters might have quite dramatically gone from bad to worse… yet one wonders.

My usual suspects are:

1. Someone in FT with a delicate ego feels his or her importance diminished by giving voice to a lowly non PhD from a developing country daring to opine on many issues of developed countries.

2. That FT has some sort of conflict of interest with the credit rating agencies that makes it hard for them to give too much relevance to someone who considers they have been given too much powers.

3. The FT establishment had perhaps decided there were only macro economic problems and not any financial regulation problems, and wanted to hear no monothematic contradictions on that.

4. That FT feels slightly embarrassed when someone repeatedly asks the emperor-is-naked type question of what is the purpose of the banks and realizing this was something FT should have itself asked a long time ago.

5. It is way too much oversight for FT to handle.

6. Or am I just supposed to be a living example of one half of the Financial Times motto, namely that of "without favour"Which one do you believe is closest to the truth?

A Blog is born

I like reading The Financial Times, or FT as it is known, and I frequently write letters to the editor and some of them that have indeed been kindly published, for which I feel thankful. But then I realized that all those letters to the editor that for reasons impossible for me to comprehend were never published, were condemned to an eternal silence not of their own fault, and so I decided to, at a marginal cost of zero, to resurrect them and keep them alive, right here.

English is not my mother language so bear with me and you’ll probably note when my letter has been published in FT by its correctness. Swedish is my mother language but I have not written anything serious in it for about 40 years and last time I tried, they just laughed their hearts out because of my démodés. Polish is my father language but, unfortunately, I do not speak a word of Polish, much less write it. Yes Spanish is my language, as I am from Venezuela and although I trust I write in it with great flair, I would still never dream of publishing an article in Spanish without having it edited by my wife.

And so friends here is my Tea with FT blog with my old and new letters to the editor. I hope you will share them with me now and again, and then again and again.

Welcome, and cheers, as I believe they say over there.

Per

PS. Just so that FT does not get too cocky and believe it is my only window to the world, I will now and again publish a letter sent to the editor of another publication.